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it won't make a difference because they will lose the difference to taxed"  was something one of my co-workers parroted from their drive in listening to yell radio.

They also were under the idea that minimum wage earners are "tax exempt".

Between calls, I dug up the numbers and while they did prove him wrong as expected, the numbers were not what even I expected.

More after the squiggle.

People earning minimum wage are not "tax exempt". Every dollar you earn is taxed at 7.45% for Social Security. The first $6,100 (for single) earned is not taxed as it is the "standard deduction" you take off your income before Fed income taxes start, then you pay 10% on income between $6,101 and $8,965, 15% on income from $8,966 to $36,000.

So currently a person working full time at minimum wage is earning $15,080 which they pay $1,123 in FICA/Medicare taxes. They then pay 10% on 2,864 of income ($286), then 15% on $6,114 of income ($917). So a minimum wage earner pays $2,326 a year on $15,080 of income under the current system.

IF the person has a family they are trying to support their standard deduction is higher, ($8,950 single parent/ $12,200 married joint file) which will lower the Income tax bill but not the FICA (Social Security) tax. (Tax rates are the same 10%, 15% just shifted higher)

IF they also have kids, they can get the Earned Income Tax Credit. If they earn less than $36,760 and have one kid they can receive a credit of $3,250. This is applied to their income tax due. As you can see, this credit is more than what they paid in a year as a single person. ($2,326 vs $3,250 = +$924) They get a refund of $924. (If they don't have a kid the tax credit is $487) (giving them an effective wage of $16,004 a year.)

If minimum wage was increased to, say $12 an hour, or $24,960 a year (40 hours a week, 52 weeks a year, no vacation or sick time). They would still get the same standard deduction, same tax rates. $1859 FICA, $286 for the 10% rate, $1,483 on $9893 of income at 15%. (again a single person.) Total taxes of $3628.

The Earned Income Tax Credit would still cover $3,250 if it was a single parent with one kid. So a tax of $379 would not be refunded. Giving them an effective wage of $24,581

This is only for Fed taxes, state and local taxes, sales taxes, property taxes, etc are not looked at.

They are not tax exempt, the current minimum wage worker pays taxes, but can get a tax credit. Higher wages would increase the actual taxes collected and at $24,000 a year for a single parent, reduces what welfare programs they qualify for. (lower food stamps, less utility assistances and cash support. Won't change medicaid and Section 8 aid)

So they will "pay more" in taxes, $400 but take home $8,000 more a year.

The EITC for a married family with three or more kids is $6,044 up to an income of $51,567. (a $24 an hour job).

Some want to reduce or end the EITC now, not even if the minimum wage goes up. To get the EITC you have to earn some income, i.e. have a job. This is not "giving money to lazy people", but is a way to reduce the taxes of people at the lower income range.

Even still, changing or getting rid of the EITC but increasing the minimum wage to $12 would still benefit the worker. They would pay $1,302 more in taxes than at $7.25 but would have an increase in their total income: $21,332 vs $12,754. I don't see anyone saying "it is not worth working because they will just take it all in taxes."

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Comment Preferences

  •  Tip Jar (12+ / 0-)

    Stupid question hour starts now and ends in five minutes.

    by DrillSgtK on Fri Dec 13, 2013 at 11:29:11 AM PST

  •  If They Were Correct, We'd Be Paying CEO's Minimum (3+ / 0-)
    Recommended by:
    tardis10, Calamity Jean, JerryNA

    wage as well. It wouldn't make sense to pay anyone any more.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Dec 13, 2013 at 11:48:04 AM PST

    •  Only believable to morons who can't/won't do math. (0+ / 0-)

      You know, Right Wing Radio/Fox News' target audience.

      •  Apparently there is some truth in what was said. (0+ / 0-)

        The shouter on the radio had been talking about a Maryland program that "exempted" part time workers earning less than $15,000 a year from state taxes.

        I'm sure the radio said this, but not in a way that clear so the people driving would know it was just one state program.  Instead i'm sure they said it to imply that it was Fed law that low income earners were tax exempt.

        Stupid question hour starts now and ends in five minutes.

        by DrillSgtK on Fri Dec 13, 2013 at 08:17:53 PM PST

        [ Parent ]

  •  Lot of work to go through to demonstrate (2+ / 0-)
    Recommended by:
    eyesoars, JerryNA

    the lie of one single belief to a small group of low information citizens.  Thanks for the effort.  Keep it up.

    "Never let up. Crush bigotry and greed."

    by LouisMartin on Fri Dec 13, 2013 at 04:33:55 PM PST

    •  it is a lot of math (0+ / 0-)

      but our tax system is so complicated it keeps people from looking into it.  (personally if you told me there was a series of options and forms you could fill out and file in the correct order that would get the Fed to issue a refund check for $1 million and be legal…I would not be amazed if it turned out to be true)

      On the other hand, the short answer is: currently minimum wage pays $15,080 and is taxed $2,360.  Raising it to $12 an hour would pay $24,960 and would be taxed at $3,628.  They would see their income go from $12,754 to $21,332 after taxes.

      Stupid question hour starts now and ends in five minutes.

      by DrillSgtK on Fri Dec 13, 2013 at 08:14:39 PM PST

      [ Parent ]

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